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The Heart of Our Debting Issues
In the past two decades, a plethora of books on personal finance have hit our best-seller lists. Almost all of them tell us to get out of debt, to live on a budget, and to invest. They deliberate the reasons why debt is a âbad investmentââthat is, we pay much more for products and services because of interest and inflationâbut these books almost never tell us how, specifically, to get out of debt and how to stop going into debt. They tell us that having a budget is a necessity, but they donât tell us how to create and live by oneâa realistic daily one. Some straight-talking authors give readers monthly bottom lines and even delineate spending categories, but nobodyâI mean nobody!â gives a practical, daily strategy to help us stop our compulsiveness and live within our means.
Most finance books tell us to make investments. And thatâs all very nice and neat for those of us who believe we are responsible financially or who are motivated by money math. But for those of us who are already in debt or are in spending trouble, this kind of advice is disastrous.
Invest? Who are you kidding? We can barely make our rent and credit card bills each month. We owe the IRS two years of back taxes. Retirement? We shrink at the very word. Pay ourselves first? In what dream world? Budget? Come on! We canât bring ourselves to write down on paper what we already think we knowâthat we donât have enough to live on and weâre carelessly overspending anyway.
So those of us who need financial coaching the most tune out, turn off, and close these books for good, almost as soon as we open them. And if weâre in the cycle of debtâentitlement, addictive overspending, guilt, and regretâthese financial admonitions most often make us feel more of what we already feel: that our finances are always a disaster, so itâs best to put our heads in the sand and grind through this money experience as blindly as possible.
The Debt-Free Spending Plan Is Not a Budget
The Debt-Free Spending Plan is not a traditional budget. Itâs not a shortage-inducing tool. Itâs a simple plan to show you, first, how you are currently spending your money, and thenâmore importantlyâ asks you how you want to spend what you have.
This book asks you to write some things down. It asks you to use your calculator. It asks you to be realistic about paying your billsâ like rent, mortgage, and health insuranceâfirst. And then it helps you create a daily living expense plan that includes all of your needs, and even some of your wants. It helps you nail down the octopus arms of your unaddressed debts (Chapter 6), and begin paying them back, even if itâs just $5 a month. It helps you address your living expenses first, so you can learn to live on your income without deprivation, without living for your creditors.
In doing these few simple tasks, youâll begin to get clarity. And with clarity comes more money. Iâve coached many people, helping them create their personal Debt-Free Spending Plans, and each has had some small or large âmoney miracleâ as a result. Itâs almost as if life were saying, âOkay, Jo, youâre taking good care of the money youâve got now, so weâre going to give you some more. We trust you to use it well.â Do the Debt-Free Spending Plan and see for yourself. More responsibility with your money breeds a greater capacity to handle more of it.
LIVING WELL ON WHAT YOU EARN
Hereâs the crux of the argument: When you learn that you really can afford what you need and want, and you can support yourself without going into debt, you will feel better about yourself. You will stop the roller-coaster of self-abuse and selfhatred, and start building a new relationship with yourself and your moneyâa debt-free relationship that builds pride and self-respect.
The Debt-Free Spending Plan may require that you visit the bank a few more times in the first few months. It will require that you set aside time at the end of each month to add and subtract some numbers. And for the price of a little time and some jotted-down numbers, youâll begin to get free.
The promise of the Debt-Free Spending Plan is very simple: Youâll get free of money stress, and youâll live more richly and more fully. Youâll make choices about how you want to live and how you want to spend. Youâll have a plan to address each of your debts. Youâll relax. And, probably the biggest payoff Iâve seen in myself and my coaching clients is, you will no longer fight about money in your relationships.
Youâll have a Spending Plan to address your Bills (monthly payments), your Daily Needs (groceries, cleaners, medical co-pays), your wants (entertainment, vacations, fun money)âand will actually have some reserves. Yes, youâll start saving, even if itâs just $10 a month, for things you like, things you enjoy, things you want. And youâll do all of that in the first thirty days of using the Debt-Free Spending Plan.
Even if this sounds impossible to youâif your finances are in such a disastrous state that you canât imagine being at peace with your moneyâthe Debt-Free Spending Plan will still work for you. The Spending Plan doesnât care if youâre afraid, rebellious, skeptical, or angry. If you do the plan, it will work. Every time.
What This Book Will Do for You
The Debt-Free Spending Plan is not a book to teach you how to invest. Itâs not a book that will tell you the ins and outs of credit lines or credit ratings. Itâs not a book thatâs meant to educate you about the overall American financial situation or world financial picture. Itâs not a book to help convince you of the spirituality of money, or how to attract itâthough by living debt-free you will automatically do just that.
Similarly, the Debt-Free Spending Plan is not a pie-in-the-sky, âput your spiritual needs firstâ approach to money. Itâs not a plan that asks you to âvisualize your way into prosperity.â It addresses, first, what feels most realistic to you. Rent. Food. Living expenses. When I was $90,000 in debt, facing bankruptcy, and my business was falling apart, the last thing I wanted to hear was an admonition to put my âspiritualâ and âeducationalâ needs first. I needed to figure out how to live! I needed to figure out how to pay for my housing, my health care, my utilities, and to deal with the creditors at my back.
Iâm not a believer in advocating that risky-for-debtors proposition âDo what you love and the money will follow.â While the premise is sound enough for people who have good money skillsâdo something thatâs meaningful to you, get paid for it, live within your means, and build on thatâfor debtors this advice can be disastrous. Thatâs because we debtors will twist this encouraging adage to mean we should spend money we donât have to do what we loveâand then God, or the Universe, or the Great Magical Money Machine in the sky will relieve us of our financial burden (our debt) because we went into debt for something we love. We use this admonition to gamble, running up our credit lines. Iâve done it and I know dozens more people whoâve done it, too, with disastrous results.
So the Debt-Free Spending Plan will not ask you to engage in magical thinking and unfounded financial risks in the name of âspiritual prosperity.â It is not a spiritual principle to incur debt in order to do what you love. The Debt-Free Spending Plan will teach you to take steady steps in building your dreams, and to fully fund your personal, familial, entrepreneurial, and artistic ventures as you undertake them.
Thatâs a hard pill to swallow for those of us who are used to using debt to fund our ventures. We want a payoff now, and we want it to occur simply because we took the risk of trying something we believe in. But using credit this way is risking our solvency, and itâs just another justification for incurring debtâthis time with a spiritual spin. Donât fall for it. Thereâs another way, and itâs infinitely more peaceful.
Most personal finance books give some detailed version of one or all of the above topicsâuseful, in my opinion, in the hands of someone whoâs not debting. But for those of us who are running up debt (or who are living in cycles of it), the first order of business is to learn how to live solvent. That means living with the money we have, each and every month. It means learning how to live in the black, month after month, until this way of earning and spending becomes an ingrained part of our very being.
How Did I Get into This Mess?
Answering the question âHow did I get into debt trouble?â is murky terrain for most of us. First, weâre often in more trouble with money than we like to admit. We may already know that we have a tendency to overspend or be vague about our finances, and we probably donât have a realistic grasp on what it costs us to live or the total amounts we owe. Thatâs all normal stuff when we begin learning to live debt-free.
But the heart of our issuesâthe real trouble, if weâre honest about itâis that we keep running up debt even after we know weâre in over our heads. Weâre still using credit cards to live even after weâve glimpsed the impending financial disasters ahead. We donât like to take responsibility for the messy (or even disastrous) state of our finances, and we have a trunk full of reasons that debting has been necessary. We feel compelled to debt even though we know it is causing us harm. And even when we pay off all of our cards and begin debting again with the best of intentionsâthat is, a promise to pay off all of our cards each monthâwe end up back in terrible, escalating debt. So how did we get into these nasty debt habits in the first place? Weâre going to take a look at that right now.
THE RISE OF THE CREDIT CULTURE
I used to joke in the 1980sâwhen my debt troubles beganâthat if I had it, I spent it, and if I didnât, I spent it anyway. When I was 20 years old, ATM cards were just appearing and only a few businesses took credit cards (you couldnât buy groceries with credit cards), but there were certainly enough credit options for people to begin getting into debt. And I did.
Now we can buy anything on credit! We can even run up cash advances and pay our mortgages with a card! In other words, those of us from age 20 to 50 are the first generations in our history who have had ready access to credit since we reached adulthood. With that development came the resulting freedom to extend our income beyond its reasonable reach, and that has radically impacted the way we buy.
This is not our parentsâ doing. This is not something our teachers neglected to teach us. We did this. This is our part. Our generations invented this system, thought it was incredibly peachy, and we promoted it until the cows came home. Who is âeverywhere you areâ? Your credit card company. What is âpricelessâ? Whatever your credit card can buy.
So what have we done with the illustrious spending freedom thatâs been bestowed upon us? This is what weâve done: Weâve created a country full of people of all ages with financial disasters on their hands, with more money pressure than is reasonable for any one human being to handle.
IN WITH STRUCTURE, OUT WITH STRINGENCY
Our misuse of credit freedom reminds me of the disaster in class scheduling that my high school implemented in 1974. I was a freshman, and our progressive superintendent decided to institute what was called âmodular schedulingââan open class-scheduling program in which students had huge blocks of free time to schedule as they wished.
We were to useâat our own leisureââlearning labs,â âresource centers,â and the library. All we had to do was make a list at the beginning of the day of where we were supposed to be at each hour. Andâthis was the kickerâwe had entire mornings, whole afternoons, and sometimes whole days completely free of assigned classes to attend. You can guess what happened. A huge number of teenagers started spending entire days smoking pot in the woods behind the school. Having no structure was okay for a handful of kids who had amazing self-discipline and well-developed skills, but for a lot of my high school peers, it was a debacle that tanked rather quickly.
The same has been true, in my opinion, for our generation regarding credit. Structure-less and free to run up as much debt as we can qualify for, weâve done just that. Weâre the high-schoolers smoking behind the school. Without any limits, weâve failed to hold ourselves accountable. Having no structure has not been good for us. In fact, itâs been a disaster. Weâre clueless about how much we spend, how much we need, what we can afford, and how to spend wisely. Weâre not accountable to ourselves or our creditors, and we have no idea how to live in peace with our money.
We need structure. Not stringency, but structure. We need a structure thatâs strong, yet flexible enough for real-life money concerns, for the actual items that come up in a week or a month of spending. And we need enough flexibility in our structure for the real-life financial glitches that come from just being human.
AM I A DEBTOR?
Probably one of the hardest things to admit to ourselves is that weâre debtors. Whatâs a âdebtorâ? A debtor is someone who uses unsecured debt to fund living expenses, purchases, needs, wants, and even âemergencies.â Whatâs âunsecured debtâ? Credit cards, lines of credit, department store cards, borrowing from friends or familyâin short, any purchase, borrowing, or loan that indebts us to another person or institution, with interest or witho...